Credit Scores & Student Loans

A credit score is a number that summarizes your credit history. Before you borrow, credit scores are used to determine eligibility for PLUS loans, and interest rates for private loans.  You can request a copy of your credit report and follow your credit score.

The credit bureaus have not revealed the exact formula for calculating credit scores, but making on-time payments can certainly help your score. It is especially important to shop and compare private loans.  Fair Isaac has said that student loan inquiries made during a focused time period (for example 30 days) will have little to no impact on your credit score.  Fair Isaac has also provided this general information about student loan debt and the impact on credit scores.  You should also not have to worry about a negative impact on your credit score if you are making small payments (or even 0 payments) through an income-driven repayment plan.  Staying current on your loan should be most important for your credit score, not the amount of payments.

Late payments or loan defaults will hurt your score. If you discharge your loan in bankruptcy, it will no longer be listed as currently in default on your credit report. However, the fact that you filed bankruptcy will be on your credit report for ten years.

The Department of Education, guaranty agencies, and other federal student lenders are required to send information about your loan to the three major credit bureaus (Experian, Equifax and TransUnion).  They must supply information about the total amount of loans extended, the remaining balance, and the date of delinquency if you are past due on your payments or the date of default if you are in default. Many loan servicers will not report a delinquency until you are more than 60 days past due.   They supply information concerning collection of the loan, repayment status and the date the loan is fully repaid or discharged by reason of death, bankruptcy, or disability. Most private lenders will also report to credit bureaus.

If you default on a federal Direct Loan, your loan will be listed as a current debt that is in collections. If you default on a FFEL (federally guaranteed loan), your credit report will indicate that a claim has been paid on the account.  Guaranty agencies will report the default to the credit bureaus 60 days after they pay the claim.  If you repay the debt in full, the debt will no longer show a past due balance, but the negative payment history will still be listed on your report for up to seven years. Perkins Loan defaults can be reported until the loan is paid in full.

There are often problems in the way student loans appear on credit reports.  In April 2016, the Departments of Education and Treasury in consultation with the CFPB announced an initiative to modernize the way student loans appear on borrowers’ credit reports.  A key goal is for all student loan servicers to use the same basic reporting framework.

You can get some credit reporting benefits if you rehabilitate or consolidate your defaulted federal student loan.  If you successfully rehabilitate, the loan holder will remove the default notation from the report.  In most cases, however, the other negative history will remain until it gets too old to report.  If you consolidate, the negative history for the old loan will remain on your report until it gets too old, but your report will show you as current on the new consolidation loan.

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